Foreclosure, Foreclosure: When the Banks Come Over
Foreclosure, Foreclosure: When the Banks Come Over
June 20, 2020
Like many states, Florida and Nevada currently have moratoriums in place on the litigation of evictions and foreclosures to permit renters and borrowers to remain in place while the nation finds its way through the morass brought on by COVID-19. As Nevada Gov. Steve Sisolak stated at the press conference announcing his Moratorium Directive on March 29, 2020: “This directive is intended to keep people in their homes at a time when we are encouraging all Nevadans to stay at home,” said Sisolak. “This is not the time to put people out on the streets. This is also not the time to evict small business owners who have been hit hard by the economic fallout of this pandemic.” However, Nevada’s moratorium currently ends on June 30, 2020 and Florida has a similar deadline of July 1, 2020. While these may be extended – as they have been previously – it will likely not be for longer than another 30-day period, so affected individuals and businesses are understandably concerned about what is coming next.
First, what are the moratoriums and what do they mean for those affected? Florida enacted its moratorium via Governor’s Executive Order No. 20-94 on April 2, 2020 and extended it with Governor’s Executive Order No. 20.121 on May 14, 2020. The orders suspend and toll operation of Florida foreclosure statutes for 45 days from the date of the Order, including any extensions. Additionally, the chief judge of each judicial district in Florida has authority to define the scope of the stay of foreclosure-related proceedings due to the Covid-19 pandemic. Most judicial districts have implemented this by declaring foreclosures “non-essential” proceedings and suspending foreclosure sales until further notice. Similarly, the Nevada Governor’s Declaration of Emergency, Directive 008 dated March 29, 2020, prohibits initiation of foreclosure and evictions based upon default under a mortgage until the emergency declaration dated March 12, 2020 terminates or expires.
Importantly, both Florida and Nevada’s directives make clear that they do not relieve any party of its contractual obligation to pay. That means that while the mortgage holder or landlord is temporarily prohibited from instituting eviction or foreclosure proceedings; rent and mortgage payments are still accruing and are still due. When the moratoriums are lifted, borrowers and renters will be immediately responsible for the full amount of their mortgage or rent withheld during this period unless additional provisions or legislation provide otherwise. While officials have encouraged lenders and landlords to negotiate with borrowers and tenants, there is no requirement to do so.
Second, these moratoriums apply equally to businesses as they do residences. Therefore, many mid-to-small size businesses are also likely to be affected by the end of any applicable moratoriums. Re-opening businesses must consider this in their immediate recovery plans.
Most experts are encouraging borrowers and renters to use this period to reach out to mortgage holders and landlords and begin negotiating either payment terms or a controlled relinquishment of the property. This advice has been endorsed by the Federal Government in the form of the CARES Act which authorizes forbearance for those in a federally-backed mortgage loan that can prove they are economically affected by COVID-19 fallout. If negotiating proves impossible or unsuccessful, the law provides rights for both those being evicted and foreclosed upon. While not a permanent solution, they may provide sorely needed time in a period of economic uncertainty or the leverage needed to negotiate a mutually acceptable solution for both parties.
First, there are contractual defenses that one can assert to both foreclosure and eviction. Start with the lease or mortgage agreement. Are there provisions that address how late payments are to be handled? Are there particularized exceptions for extenuating circumstances like a national pandemic? Second, every state has notice requirements that must be met before foreclosure or eviction is permitted. Was timely notice provided properly? Third, are there equitable defenses to consider like waiver -- the voluntary relinquishment of a right by conduct inconsistent with claiming that right – or estoppel – preventing a party from taking actions that are contrary to previous behavior? The latter may become more prevalent depending on how mortgage-holders and landlords conducted themselves in negotiations with borrowers and tenants during the moratoriums.
Finally, it is important to remember that it is not only the borrower and renter that has been affected by this unforeseen pandemic but also the mortgage-holders and landlords who will need the income provided by borrowers and renters to make their own respective obligations. This provides an extraordinarily strong incentive for both of the parties to work together. Borrowers and renters want to keep their home or business. Mortgage holders and landlords want to keep their income and viability. There are certainly no easy solutions, but there seldom is to complex problems. If you or someone you know are in this situation and need help, reach out to an attorney you trust for assistance. No matter what action is taken, take advantage of this time to have a plan in place for the inevitable end of COVID-19-related moratoriums on foreclosure and eviction.
**UPDATE** On June 30, 2020, Florida Gov. Ron DeSantis signed Governor’s Executive Order No. 20.159, further extending the moratorium until August 1, 2020.
On June 25, Gov. Sisolak of Nevada signed Declaration of Emergency, Directive 025, extending Nevada’s moratorium but permitting the moratorium to discontinue in phases – beginning with commercial tenants on July 1, 2020 and with residential tenants on September 1, 2020.
The Federal Housing Administration (“FHA”) have also issued a moratorium on foreclosures and evictions for qualified borrowers and tenants in properties with FHA-insured single-family mortgages, that has been extended through August 31.
Jason B. Trauth